Tax cuts needed to preserve New Orleans small businesses

I attended the Southern Political Science Association annual meeting this past weekend in New Orleans, my first visit to the place since Hurricane Katrina, where I lived two decades ago. My anecdotal evidence confirms the thought that the city is in trouble and bold policy action is required to keep an implosion from occurring.

I didn’t go to gawk at the wasteland of New Orleans East, nor the struggling Lakeview, not even checking out the condition of my mighty alma mater the University of New Orleans and the area near it. Instead, I did quite a bit of walking (because the mass transit system, to my view, was far below in provision where it used to be) in the areas of town which were relatively undamaged by the flooding – Uptown, the CBD, and my old neighborhood the Vieux Carré. Economic activity in these areas is supposed to reflect the main forces driving the city forward. Besides a paucity of mass transit, I observed the following:

Noticeably reduced foot traffic around Canal Street and into the Quarter
Hotels significantly less busy that I ever have seen
More Louisiana State Police vehicles than New Orleans Police Department cars, and more private security vehicles, even cruising the main drags like St. Charles, the either of these
Vacant storefronts in places I never had seen before, along with the odd Dumpster beside a building or house

Two interrelated conclusions can be drawn from these observations, combined with the facts that many businesses are on the record as struggling, the city’s population is not even half of what it was prior to Katrina, its dependence on tourism has caused its economy disproportionately to suffer because of memories of the storm and rampant crime and suffering immediately in its aftermath that shies away tourists/conventioneers, and that a continued bad crime rate keeps the bad publicity rolling on in.

As such, plans to “market” the city with an initiative costing tens of millions of dollars will not have much return until the negative image of crime and, to a lesser degree, political ineptitude are reduced. No positive campaign can turn these around much less in in the short run, only political will can.

Since this will take time, the public policy problem becomes one of keeping the economy afloat with only about half of the people and half of the business available as before, until these factors are mitigated to enable support a business infrastructure at the previous level. While there’s nothing government can do that effectively stimulates demand for what New Orleans businesses have to offer, there’s much it can do to reduce businesses’ costs that can keep them profitable and running at this lower level – cut their taxes.

Instead of spending $20 million on ads, throw it back into the treasury and declare that any Louisiana-owned, small business (it’s risky, but I’ll let the Legislature define these terms) in New Orleans does not have to pay any state taxes of any kind. In fact, if the numbers show it wouldn’t be too big of a hit on state tax revenues, throw in as well those located in St, Bernard, Plaquemines, and even certain parts of Jefferson Parish as beneficiaries.

Sure, this may cost the state hundreds of millions of dollars, but only last month politicians across the state were debating what to do with a budgetary surplus estimated beyond $2 billion. This seems to be a much better long term investment with a portion of that money than a number of things suggested for spending these funds.

But this, along with measures to encourage more writing of insurance policies and to get Road Home rebuilding funds distributed faster, has to happen much sooner rather than later. Given the two most important people involved in this task would be Louisiana Gov. Kathleen Blanco and New Orleans Mayor Ray Nagin, that’s a lot of wishful thinking for the kind of incisive and decisive leadership that this idea calls for. Nevertheless, it’s in the state’s best interest if it does.